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January 20, 2011

CMHC Clarifies Refinance Exception

Refinance-MortgageAs most know by now, the government will ban insured refinances over 85% loan-to-value on March 18.

This has raised a question about mortgages registered as a collateral charge (like those offered by certain banks [e.g., TD] and credit unions).

Moving a collateral charge mortgage generally requires a refinance. However, the Finance Department’s Monday announcement didn’t carve out an exception for them. Therefore, it appeared that some people might be prevented from switching lenders if their collateral charge mortgage had an LTV higher than 85%.

We’ve now received welcomed clarification on this policy from CMHC.

Benoit Sanscartier, Director, Insurance Policy and Technology Operations, says CMHC will allow an exception to the refinance restriction for qualified borrowers who need to refinance to switch lenders. “We don’t consider these refinances in the traditional sense,” said Benoit.

The key is that the borrower must not be increasing their loan amount or amortization.

CMHC has long allowed qualified home owners to freely switch lenders if their insured mortgage is over 80% LTV, subject to the new lender’s approval and the loan amount and amortization not increasing. Even mortgagors with LTVs above 95% can switch lenders in this manner.

As a practical matter, however, some lenders don’t accept transfers when the LTV is over 90-95%. If this is relevant to you, it’s best to speak with your mortgage professional for complete details.


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